The chaos in the Middle East has sent oil prices soaring toward a century mark of $100 a barrel, and construction costs were already on the rise at a 12.6% annualized rate before the conflict escalated. Fuel, diesel, metals, and shipping costs are all heading in one direction: up - and those increases hit your bottom line straight away. So what can contractors do to mitigate the damage?
The conflict in the Middle East that kicked off in late February 2026 is more than just a news story - it's a business problem with some very real consequences for construction costs, material availability, and profit margins.
Construction input costs are surging at a 12.6% annualized rate, driven in part by energy costs - and that's likely to get worse. The data we have so far only accounts for a couple of months and doesn't take into account the impact of rising oil prices, which will push construction costs even higher in the coming months.
The problem is that construction material costs have already started to surge in February due to significant increases in oil, copper, lumber, and steel prices - and that's before the latest surge in oil prices near $100 per barrel. That means construction materials prices will go up even more, driven in part by higher diesel prices and shipping costs.
At the heart of the problem is the Strait of Hormuz - a narrow waterway that's a critical route for about a fifth of the world's daily oil and liquefied natural gas production. With the strait all but impassable, energy markets have been repriced, and we're now seeing the impact of sustained disruption embedded in global commodity pricing.
The fuel price increase is probably the most visible impact, but it's far from the only one. Here's how the current situation is affecting your cost structure:
Fuel and transportation. Every time you send a crew out to a job, every time you move materials around the site, or every time you go for a site visit - it's costing more than it did 30 days ago. And if you've got multiple crews working on multiple projects at the same time, this compounds quickly.
Materials costs across the board. Higher diesel prices are having an inflationary impact on just about everything in the economy because diesel powers farm equipment, construction equipment, and the trucks and freight networks that carry goods across the country. Your lumber supplier, your roofing supplier, and your hardware distributor - they're all absorbing the same cost shock, and it will work its way into their pricing.
Metals in particular. Producer price indexes for aluminum and steel have both gone up significantly over the past year - with the biggest year-on-year increases we've seen for a while. Fabricated metal products, copper, and brass mill shapes - they've all moved higher as well.
Shipping and logistics. Markets are pricing in a risk premium for oil and shipping until things get back to normal, and even without a formal closure of key waterways, logistics uncertainty is causing input costs to go up and delivery risks to heighten.
Client hesitation. Rising costs are already causing some owners to put projects on hold, and industry leaders are warning that there's a limit to how many price increases the market can absorb before owners start putting planned work on ice.
Any proposals you've already submitted are effectively worthless now - the cost baseline has changed completely. Take a hard look at all your open quotes, especially for projects that are still in the planning stages, and figure out how much you're really exposed to. It may not mean you need to withdraw every quote, but you need to know where you stand before you can make any decisions.
This is probably the most protective thing you can do in a volatile cost environment - a cost escalation clause lets you revisit certain line items if costs move beyond a certain threshold during the project. It protects your margin and sets expectations with the client upfront, rather than having some tough conversations halfway through a job. A simple version might read: "Should the national average price of diesel fuel or key construction materials jump by more than 10% from the day this proposal was penned, the contractor's got the right to review and adjust any relevant cost lines and give the client a good old-fashioned written heads-up."
Most clients are going to accept this clause if they get a fair explanation for why it's there. But those who resist deserve an honest chat about what's going on in the market right now.
If fuel costs are buried inside your overhead, they're invisible to you, and you can't manage what you can't see. Breaking out transport and fuel as a line item on your estimates gives you some much-needed visibility into where your costs are at, making it way easier to have a real conversation with clients when you need to adjust. And at the end of the day, having a solid conversation is what it's all about.
Every unnecessary trip to the supply house is now costing you more than it was last month. Batching orders, coordinating deliveries, and keeping trips to the supply house to a minimum are basic disciplines that pay off in any kind of cost environment - but especially when diesel prices are through the roof. Project owners and contractors who give it some focus early on, really good visibility, some optionality, and realistic lead times are going to be in a lot better shape to protect cost certainty and keep the project on schedule.
If you've got active projects or bids out there that are going to be impacted, reach out and have a conversation before the client starts to get worried. A simple message that acknowledges the situation and explains how you're managing it goes a long way to keeping their trust. Clients don't expect their contractors to be immune from market forces, but they do expect to be told what's going on.
A prolonged conflict that keeps energy prices high could drive up inflation and, with it, interest rates - piling even more pressure on borrowers and project financing. Some of the research coming out is saying that the risk of a broader economic downturn over the next 12 months has gone up, with inflation running closer to 3% this year. Not great for disposable incomes or for job creation either.
The businesses that are going to weather this period best are the ones that update their contracts, tighten up their cost tracking, and talk to clients early on. That's not going to cost you anything but a bit of time, and it's going to protect your margin and your client relationships - those things are really hard to rebuild once they're lost.